The Indore headquartered company supplies bead wire used to attach inflated tyres to the ream to leading tyres makers including
, , , JK Tyre Industries, Balkrishna Industries, and Michelin. Industry consolidation that has resulted in only three bead wire makers in the country and curb on tyre imports have helped RGW to grow sales volume faster than the industry growth rate.
The total domestic market size of tyre bead wire (TBW) is 1,00,000-1,10,000 metric tonnes (MT) and is expected to grow by 7-8% annually. Tyre imports in revenue terms dropped by one-third in FY21 compared with three years ago. Consequently, the company’s domestic TBW market share increased to 50% in the first half of FY22 compared with 35% in FY20.
The company’s volume grew by 50% year-on-year in the six months to September 2021 to 43,833 metric tonnes while revenue increased by 108% to Rs 423 crore on better realisation. A mix of higher utilisation and low-cost production lifted the company’s operating margin before depreciation and amortisation (EBITDA margin) to 20% from 10% in FY18. The company expects to sustain the current level of profitability.
Of RGW’s total domestic wire capacity of 72,000 MT, TBW accounts for 60,000 MT while the rest is for the supply to cable companies. The company also has 40,000 MT of TBW capacity in Thailand. To take advantage of growing demand, the company has started setting up 60,000 MT capacity in Chennai for an investment of Rs 300 crore. It will be operational by the middle of FY24 and has a potential to add Rs 500-600 crore per annum to the revenue. Once the new facility is commissioned, the company expects to improve the domestic market share to 60%.
It will also expand the capacity in Thailand to 60,000 MT by the end of FY22. RGW is the only TBW manufacturer in Thailand which accounts for nearly 8% of the global tyre production. The utilisation of RGW’s Thailand facility has been improving amid lower Chines import since China has removed export rebate of 13% for TBW producers and several tyre makers are looking for alternative supply chains under China plus one strategy.
RGW’s combined TBW capacity will increase to 1,80,000 MT over the next two years. The company expects to clock Rs 1,400-1,500 crore revenue in FY24, compared with Rs 546 crore in FY21. At Wednesday’s closing price of Rs 2,279.8, the stock was traded at 18 times FY23 expected earnings, which is at a discount of 7% compared with the valuation of tyre makers. This may narrow given RGW’s superior earnings growth and revenue visibility.